The Nigerian government and the People’s Republic of China have agreed on continuing the local currency swap between China and Nigeria to facilitate trade between both countries.
This was expressed in a joint statement by both countries to explain their commitment towards encouraging flexible and diverse regional monetary and financial cooperation as well as contributing to global financial stability.
The local currency swap means that Nigerians can engage in trade with China without having to use a third currency which is the dollar. They can instead purchase Renminbi (Rmb) directly from the Central Bank and proceed with their transaction.
This is not a new policy however. The Central Bank of Nigeria, CBN, had in 2018 signed a bilateral currency swap agreement with the People’s Bank of China, PBoC, worth about $2.4 billion but the implementation faced challenges due to trade imbalances between both countries.
Both countries have also agreed to carry out international cooperation on financial intelligence to curb money laundering and financial crimes.
The Memorandum of Understanding also encourages the establishment of friendly relations between China and Nigeria while commiting to the protection of lawful rights and interests of citizens in their territories to create favourable business environment for both countries.
China has also expressed support for joint efforts to fully support Nigeria’s geographical and development advantage in West Africa.
Remember that Nigeria’s President is in China at the invitation of President Xi Jinping for a State Visit and to attend the Beijing Summit of the Forum on China-Africa Cooperation (FOCAC).
Highlighting the importance of the strengthened strategic cooperation between both countries, both Presidents have agreed to upgrade the relationship to a Comprehensive Strategic Partnership to ensure uniformity in future projections and development including sovereignty and territorial integrity.
Nigeria reaffirmed its support for China’s “One-China” policy, acknowledging Taiwan as an inalienable part of China’s territory.
As both nations move forward, they reiterated their shared vision for strengthening ties and advancing cooperation not only between China and Nigeria, but also within the broader framework of China-Africa relations.
The Chinese government resolved to supporting the Renewed Hope Agenda of Nigeria, while the Nigerian side expressed support for the one-China principle, acknowledging Taiwan as an inalienable part of China’s territory.
What the currency swap means
The currency swap will reduce the demand for US Dollars, and as such, reduce the pressure on the DollarNaira Exchange Rate.
Nigerians who do business in China, and whose suppliers agree to receive payment in Renminbi, can now pay in Renminbi, instead of the Dollar.This arrangement has the potential of boosting Nigeria’s exports to China as currently, Nigeria runs a large trade deficit with China, therefore redresses the trade imbalance.
It will also increase the speed, volume and convenience of business transactions between Nigeria and China, and also help safeguard Nigerian businesses from the exchange unpredictability that arises when Naira-Renminbi transactions have to go through an intermediate conversion into USD.
The Nigerian economic reality
However, previous reports show that the Nigeria-China currency swap agreement has not curbed the pressures on the exchange rate and external reserves of Africa’s largest economy as envisaged when it was signed in 2018 and renewed in 2021.
Taiwo Oyedele, the Chairman, Presidential Fiscal Policy and Tax Reforms Committee is reported to have said in 2018 that the naira-renminbi swap policy was meant to bypass the use of a third currency, particularly the USD.
“The implementation has so far been a challenge due essentially to the trade imbalance between Nigeria and China. While we import so much from China, we do not export nearly as much, which in fact has been on the decline in addition to the relative instability in the value of the naira,” he said.
The deal was expected to reduce the demand for US dollars by Nigerians importing from China and consequently strengthen the value of the naira.
The deal was aimed at reducing certain barriers for Nigerian importers of goods from China and reduce the cost of transactions in multiple currencies.
But the pressure on the exchange rate has persisted at the foreign exchange market since the signing of the bilateral currency agreement.
Increasing exports from Nigeria to China as well as promoting import substitution in Nigeria for most of the imported items is the most sustainable solution to the issue.
The yuan stands at 226.11 naira as at 5th September 2024. The dollar stands at 1604.35 naira as well.
We hope the new cooperation will be beneficial to the people.
